The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund (IMF) yesterday warned that the Bahamas’ forecast economic growth will be “insufficient to generate a significant reduction” in the 15.7 per cent jobless rate, as it slashed this year’s GDP expansion forecast to 1.8 per cent.

The Fund’s Executive Board, in announcing the end to its Article IV consultations with the Bahamas, said this nation’s GDP growth will “taper off” beyond 2016 and Baha Mar’s opening to average just 1.5 per cent.

Delivering unwelcome projections to all Bahamians, and the Christie administration, the IMF said last night: “Potential GDP growth is estimated at about 1.5 per cent over the medium term, insufficient to generate a significant reduction in the high unemployment rate.

“Absent structural reforms, including in the labour market and the energy sector, significantly higher growth than currently projected will be required to absorb new entrants to the labour force and reduce the unemployment rate to single digits over the medium term.”

An IMF report had previously projected that the Bahamas would need to achieve average annual real GDP growth of 5.5 per cent between 2013-2018 if it is to absorb all new labour force entrants over that time, and cut the existing 15.7 per cent jobless rate in half.

The Fund’s latest forecasts, though, appear to be pushing the Bahamas further away from that target than ever. The data released yesterday shows the IMF has cut the Bahamas’ 2015 projected GDP growth from 2.3 per cent to 1.8 per cent - a reduction of some $40 million.

It is, though, maintaining its 2.8 per cent forecast for 2016, presumably on the expectation that Baha Mar will open by then.

“Growth is expected to strengthen over 2015–2016 with the improvement in US activity and the opening of Baha Mar, but significant structural impediments remain,” the IMF said.

“The full opening of Baha Mar and two smaller projects, together with the strengthening US economy, could represent a major boost to exports in the near-term.

“Beyond 2016, growth would taper off as US growth decelerates, and the base effects from the opening of Baha Mar fade.”

The IMF’s executive directors described the Bahamas’ economic outlook as “challenging”, adding: “ Despite the US recovery and the imminent opening of the Baha Mar resort, growth is expected to remain below pre-global crisis levels, and the current account deficit remains elevated.

“Against this backdrop, directors called for structural reforms to strengthen competitiveness, raise potential growth and lower unemployment, and for continued efforts to strengthen the fiscal position.”

They added: “Active labour market policies could help foster job creation and, in this context, directors urged the authorities to build on existing training programmes and placement services, while easing restrictions on labour mobility.

“Over the medium term, enhancing the efficiency of labour market regulations and institutions and greater investment in human capital will be essential to increasing productivity and competitiveness. Directors also stressed the importance of stepping up reforms of the state-owned enterprises, in particular in the energy sector.”

The IMF statement said structural reforms that boosted the Bahamas’ competitiveness would support the exchange rate peg and prevent undue burdens on the Government’s finances.

The only real praise sent the Government’s way was on the fiscal front, where the IMF backed the Value-Added Tax (VAT) introduction and fiscal consolidation progress, while calling for spending “rationalisation”.

“Domestic demand has been weighed down by the weak macroeconomic outlook, high household indebtedness, and high unemployment, which stood at 15.7 per cent in November 2014,” the IMF said.

“Non-performing loans remain elevated at 16 per cent of total loans at end-March 2015, and continue to constrain private sector credit growth.

“Risks to the outlook continue to be tilted to the downside, necessitating continued fiscal consolidation, and implementation of structural measures to strengthen competitiveness, raise potential growth and lower unemployment.”